SUNDAY 9 JULY, 2017 – UWI TODAY
11
Who drives?
I do not rule out foreign direct investment in areas
outside of Energy. It is important that we remain open
to foreign direct investment. However, I do not see
foreign investors as the key to the kingdom. Our firms
also have to pursue investment opportunities overseas in
financial services, energy services and food and beverage
manufacturing. Foreign direct investment should flow
both ways.
What about Government?
Government has to get the macroeconomic balance
right; it has to promote the right incentives and apply the
right disincentives to shape private sector behaviour. It has
to regulate markets efficiently, fairly and, in limited areas of
strategic significance, it should be investor or co-investor in
certain business opportunities. To use Eric St Cyr’s phrase, it
must ‘hold the ring’ and allow the players inside to perform.
Its role is active and dynamic, but in respect of developing
and serving market demand, supportive and not leading.
Local private sector
I am advocating strongly that our local private sector
must lead the diversification effort across a broad front. I
know this is likely to be controversial. Since the 1970s, the
political directorate and the public service have not held the
local private sector in high regard, and the feeling is largely
mutual. It is why when oil revenues became available in the
1970s the Government stepped up to play the role of ‘prime
mover’ in the economy. The relationship between the public
and private sector is also overlaid with ethnic considerations
– the elephant in the room.
My argument for the local private sector is pragmatic.
The local private sector has better management capability,
stronger marketing skills, superior discernment of business
opportunities and access to some amount of capital.
They understand the global marketplace, albeit mostly as
importers, distributors and franchisees.
Their weaknesses are that, with few exceptions, they
have not taken the risks of selling into or investing overseas,
and they are largely oblivious to the need for R&D and
technological innovation, because their businesses have
never required them to be innovative. Many are completely
reliant on government spending for their business success.
It is better for us to work with the private sector to
overcome their weaknesses and enhance their strengths
than to condemn them as merely parasitic and exploitative.
How do we do this?
The first requirement is that we develop a sophisticated
understanding of the global marketplace. We need to invest
in the capability to discern trends in consumption in areas
in which we may be interested. In order to accomplish this,
we have to
(a) harness the Diaspora which is potentially significant
not only as markets but also as providers of skills and
knowledge, capital, and through their relationships,
providers of access to markets for our goods and
services;
(b) leverage relationships, personal, professional and
through economic and commercial diplomacy; and
(c) monitor closely economic, social and political
developments in China, India and Africa, as well as
in our traditional markets in the USA, EU and UK.
While government ministries – Trade and Industry and
Foreign Affairs – would be integrally involved along
with agencies such as ExporTT and InvesTT, the private
sector should be engaged to collaborate in sharing
intelligence and perspectives on products andmarkets.
The second requirement is that we invest in innovation
for competitiveness. Innovation is central to competitiveness
and competitiveness is key to successful economic
diversification. We have to accelerate innovation and
competitiveness on the basis of three initiatives:
(a) research and development activity within centres of
excellence appropriately staffed, resourced and funded
and which target specific areas of technology;
(b) supporting innovation by individuals and firms by
providing support, training and guidance, and effective
incubation; and
(c) institutionof a systemof governancewhichencompasses
intellectual property management, commercialisation,
and the management of research and development.
The third requirement is that we have structures for
effective collaboration and where necessary coordination of
initiatives between the Government and the private sector.
I am hopeful that the Economic Development Advisory
Board, along with agencies such as InvesTT, TTIFC and
ExporTT, can play that role.
Alternative Paths?
There are certainly alternative paths to the mountain
top of a diversified economy. A believer in industrial policy
would not subscribe to my iterative, interactive process for
identifying opportunities, but would identify those by other
methods. She might argue that government must lead by
investing in the areas identified, that there is no need for the
elaborate scanning of the international marketplace, nor for
collaboration with the local private sector.
There is much room for debate and discussion of
Private sectormust lead
DIVERSIFICATION
CHARGE
B Y D R . T E R R E N C E F A R R E L L
INNOVATION CONFERENCE –
June 27 & 28, 2017
alternative paths. I would merely point out that none is
going to be easy.
From here to there
Diversification requires planning and hard work across
many fronts. It is going to be hard to achieve because first,
we have to make the necessary adjustments to stabilise the
economy. Unless and until the economy is stabilised, neither
business nor consumer confidence will be sufficiently high
to support the investments that will be needed to grow the
economy.
Second, we have to overcome the powerful forces which
would keep the economy highly dependent on oil and gas.
Third, diversification is dependent on what the private
sector does or does not do. It is the private sector which has
to step up, to change its mindset fromcommerce to industry,
from focus on the domestic market to focusing on the global
market, fromavoiding risk in new ventures and technologies
to taking on selectively and sensibly risks that could lead to
expanding the portfolio of goods and services we produce
which find their way into the global marketplace.
While some leaders in the private sector seemprepared
to step up and step out, there are still too many who
immediately and instinctively look to the government to
spend oil revenues on projects or provide land for their
projects which produce profits but which earn no foreign
exchange, stimulate no innovations and are supported by
banks which themselves prefer certain kinds of lending,
take little or no risk.
Fourth, diversification will depend on trusting
collaboration between the Government and the private
sector and the cooperation of the labour movement as
jobs are redefined and new industries emerge. I would like
to position the Economic Development Advisory Board
to assist in bridging the trust gap and the collaboration
gap between the Government and the private sector and
the labour movement. I think that that work of building
bridges of understanding and collaboration, starting with
small defined projects or interventions, is as critical to the
success of diversification as getting the economic incentives
and institutions right.
This is an abridged version of a presentation,
Roadmap
to a Diversified Economy
, made by Dr. Terrence Farrell,
Chairman of the Economic Development Advisory Board,
in October 2016.
For the full document, please visit the website at
http://
edab.org.tt/
Dr. Farrell spoke on the same subject at the Innovation
Conference held at UWI St. Augustine.
Dr. Terrence Farrell, Chair of the Economic Development Advisory Board spoke on
the Draft Diversification Strategy and emphasized his point that the private sector
should take the challenge to lead the process.
